BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC - Half-yearly Report

BlackRock Greater Europe Investment Trust plc

Half Yearly Financial Report 29 February 2016

Chairman’s statement

Performance overview

The first six months of the financial year was a turbulent period for equity markets, dominated by concerns over global economic growth. It is therefore pleasing to report that the Company’s undiluted net asset value (NAV) per share increased by 2.1%, compared with a decrease of 0.8% in the FTSE World Europe ex UK Index. Over the same period, the Company’s share price rose by 3.2% (all percentages calculated in sterling terms with income reinvested).

Since the period end to 18 April 2016, the Company’s undiluted NAV has increased by 5.3% compared with a rise in the FTSE World Europe ex UK Index of 6.6% over the same period.

Earnings and dividend

The Company’s revenue earnings per share for the six months to 29 February 2016 amounted to 0.86p compared with 0.64p in 2015. The Board has declared an interim dividend of 1.65p (2015: 1.65p) per share. This dividend will be paid on 27 May 2016 to shareholders on the Company’s register on 29 April 2016, the ex-dividend date being 28 April 2016.

Tender offers

The Directors exercised their discretion to operate the half yearly tender offer in November which, in common with previous tender offers, was for up to 20% of the shares in issue at the prevailing NAV less 2%. Valid tenders for 1,236,927 shares were received at a price of 250.56p per share, representing 1.19% of the shares in issue excluding treasury shares. All shares tendered were repurchased by the Company and placed in treasury.

The Directors announced on 21 March 2016 that they had decided not to implement the May semi-annual tender offer as the Company’s shares were at that time trading at a discount of 3.2% (on a cum income basis diluted for subscription shares and treasury shares) and had traded at an average discount to NAV of 2.9% over the six month period to 29 February 2016. Taking into consideration the narrow discount, the costs of the exercise and the low take-up in November, the Board concluded that it was not in the interests of shareholders as a whole to operate the tender. The Board will continue to monitor the Company’s discount/premium to NAV and will look to buyback shares and/or operate six monthly tender offers if it is deemed to be in the interests of shareholders as a whole.

Since the period end, the Company has repurchased 325,000 ordinary shares at an average price of 245.98p and at an average discount to NAV of 5.0%.

Subscription shares

A total of 23,254,813 subscription shares were allotted to shareholders in April 2013 by way of a bonus issue. Following eleven conversions of the subscription shares since the bonus issue, the Company has issued 2,723,815 ordinary shares. Total proceeds amounted to £6,366,000. The Company currently has [102,836,916] ordinary shares (excluding treasury shares) and 20,530,998 subscription shares in issue.

Subscription shareholders have one final opportunity to subscribe for all or any of the ordinary shares to which their subscription shares relate on 29 April 2016 at a price of 248p per share. A reminder letter was posted to shareholders on 29 March 2016. The ordinary shares resulting from the exercise of the subscription share rights on 29 April 2016 will not qualify for the interim dividend payment.

Board

At the Annual General Meeting to be held at the end of November, it is my intention to step down as Chairman but to remain on the Board as a non-executive Director. The length of tenure of my fellow Directors has been relatively short and it is the Board’s view that there is considerable benefit to having at least one director with longer experience. It is on this basis, and with the Board’s agreement, that I will remain a Director for the time being. I am pleased to report that Eric Sanderson has agreed to become Chairman and that Peter Baxter will undertake Eric’s responsibilities as Chairman of the Audit and Management Engagement Committee.

Outlook

The start of the year has again proved to be volatile, mainly due to uncertainties over economic activity in the US and China. In contrast, Europe’s economic backdrop has been relatively stable as additional support from the European Central Bank through expansion of the current QE programme has had a positive impact on sentiment and both business and consumer confidence have remained relatively resilient.

However, although Eurozone economies are still expanding, growth has slowed and a number of challenges remain. The major concern is the political landscape with the increase in populist politics, the ongoing terrorist threat and the need to solve the migrant crisis. The referendum on whether Britain should remain in the European Union, combined with a challenged banking system, also creates an unsettled environment. Despite these uncertainties, reasonable valuations and a supportive European Central Bank policy lead us to remain positive on the outlook for European equities and, during this period of increased volatility and risk aversion, stock selection and an emphasis on fundamentals will remain a key focus for our Portfolio Managers.

Carol Ferguson
19 April 2016

Interim management report and responsibility statement

The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.

Principal risks and uncertainties

The principal risks faced by the Company can be divided into various areas as follows:

• Performance;
• Income/dividend;
• Regulatory;
• Operational;
• Market;
• Financial; and
• Gearing.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 August 2015. A detailed explanation can be found in the Strategic Report on pages 7 and 8 and in note 18 on pages 47 to 53 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.co.uk/brge.

In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.

Going concern

The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges (including any performance fees but excluding interest costs and taxation) for the year ended 31 August 2015 were 1.22% of net assets.

Related party disclosure and transactions with the Investment Manager

BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and performance fees payable are set out in note 4 and note 11. The related party transactions with the Directors are set out in note 10.

Directors’ responsibility statement

The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge and belief that:

• the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable UK Accounting Standards and the Accounting Standards Board’s Statement ‘Half Yearly Financial Reports’; and

• the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure and Transparency Rules.

This half yearly financial report has not been audited or reviewed by the Company’s auditor.

The half yearly financial report was approved by the Board on 19 April 2016 and the above responsibility statement was signed on its behalf by the Chairman.

Carol Ferguson
For and on behalf of the Board
19 April 2016

Investment manager’s report

Overview

The Company’s share price and underlying net asset value (NAV) gained over the last six months to 29 February 2016. In this period, the Company’s share price increased by 3.2% and the underlying NAV returned 2.1%. By way of comparison, the FTSE World Europe ex UK Index fell by 0.8% during the same period.

The six month period to the end of February was characterised by high volatility and deteriorating market sentiment globally. Since the summer of 2015, investors have largely reduced their appetite for risk assets as concerns over global economic growth, particularly in China and other emerging market economies, has weighed on markets. Consequently, Europe ex-UK markets have fallen; however, relative losses in Sterling terms have been muted given the currency has weakened versus the Euro (worth €1.37 at the beginning of the period, but only €1.28 at the end) as a ‘political risk premium’ has been added to GBP ahead of a 2016 referendum on British membership of the European Union. For reference, the FTSE World Europe ex UK Index fell by 7.3% in Euro terms over the period.

Policy decisions visibly drove markets during the period. China’s commitment to the stabilisation of its currency, in addition to monetary policy decisions taken by the Bank of Japan, European Central Bank and US Federal Reserve were all factors in guiding the direction of markets. Whilst it has been noted that the US and Europe are perhaps at different points in their economic cycle, the divergence in terms of monetary policy was particularly visible in the fourth quarter of 2015 as the US Fed elected to raise interest rates for the first time in nearly ten years. This further tightened financial conditions within the market, which had been implicitly tight since 2014, as a result of the significant strength of the US Dollar. At the same time, we have seen a loosening of monetary policy by both the Bank of Japan and the European Central Bank. The latter extended its asset purchasing programme in December of 2015; however, the market proved disappointed by the lack of expansion in the scale of the programme, causing European equities to move lower into the year end.

2016 to date has been an exceedingly challenging environment for equity markets. The weakness in growth prospects, especially in the US which has been relatively stable in recent years, has further heightened fears of the potential for a global recession. Closer to home in Europe, markets have been disrupted by concerns over non-performing loans provisioning in a number of Italian banks, which has heightened investor’s awareness of the risks of owning banking stocks. In this environment, we have seen financial sector share price performance hit particularly hard as banking profitability comes under ever-growing pressure in a negative interest rate environment. Whilst we do not believe there is a widespread issue with all financial stocks’ capital levels, we do acknowledge the deterioration in earnings evident in the European banking sector.

In the context of waning global growth prospects and a ‘risk off’ environment, the market has seen the strongest returns within defensive assets, such as health care and consumer staples. In addition to this, the oil & gas sector has outperformed the market as the oil price has recovered a small part of the significant losses that had been incurred.

Portfolio activity

Stock selection drove performance over the period. In particular, a strong performer within the banking industry was Sberbank of Russia. Despite the volatility that has marked the Russian market in recent months, many Russian corporates such as Sberbank are adjusting better than might be perceived. As the Ruble has depreciated under the recent move to a floating exchange rate mechanism, Russian corporate competitiveness has improved, a result which is indicative of a more flexible economy than in the past. Despite the difficult economic conditions, corporate profit margins have increased so far this year to the highest level since 2011. This does not remove the pain of devaluation, but it does assist with recovery and growth subsequent to an economic shock.

Another strong performer was our holding in Adidas. Towards the end of 2015 the company released solid results which were 4% to 5% ahead of consensus. Sales were reported at 17.7% growth, supported by strong underlying expansion in the Adidas brand. Pertinently, sales were resilient across most regions, with Latin America and Chinese figures robust, proving the emerging market consumer remains active. Adidas’ share price further benefited from the announcement of a new CEO who is well regarded by the market for his reputation of efficient cost management.

Irish airline Ryanair also contributed positively to returns as the company raised its net income guidance for the full year by 25% in September 2015. In addition, the share price responded positively to the news that the proceeds from the sale of its stake in Aer Lingus were to be distributed to shareholders in the near term. The airline reports continued strength in traffic with load factors, which indicate the amount of a flight’s capacity filled, increasing year-on-year. Ryanair is likely to prove well positioned for the upcoming summer traffic, given holiday maker’s demand for more central European destinations, the core of Ryanair’s business, in light of fears of both extremist action and potential health risks, such as the Zika virus, emanating from Latin America and the Middle East.

On a more negative note, the largest detractor over the period was our holding in Italian asset manager Anima. In addition to the stock being impacted negatively by year-to-date mark to market moves, concerns have risen around asset flows. Troubled Italian bank Banca Monte Paschi di Siena is one of the main distribution partners for Anima’s funds. Anxieties have risen regarding deposit outflows at Monte Paschi which would subsequently impact upon the asset gathering capacity of Anima. Net flows for Anima in both January and February of 2016 have been slowing, but remain positive in what is a challenging environment for asset managers. Given the enduring low interest rate environment, we believe Anima is likely to continue capturing asset flows as Italian investors look for alternatives to domestic bonds. On a broader basis, the decision to have a higher exposure to financials hindered performance as the sector sold off sharply at the onset of 2016. The lower exposure to consumer goods also impacted returns negatively. In particular,  this was evident within the food & beverage subsector, which performed strongly as investor capital moved into defensive assets with perceived higher levels of safety. We chose not to invest in many of these assets given they are unattractively valued, appearing expensive for the potential earnings growth they exhibit. In addition, the use of gearing detracted from returns over the period, averaging a net cash position of -0.3%.

At the end of the six month period, relative to the index, the portfolio was particularly weighted towards positions in the financials, technology, health care, consumer services and industrials sectors. The portfolio had lower exposure to the consumer goods and telecommunications sectors, and no exposure to basic materials, oil & gas and utilities sectors.

Outlook

Given the complexity of issues in the market, there is a high degree of uncertainty at present, which is expressed through the highly volatile conditions. Equity markets act as a weighing machine and the recent volatility demonstrates the ever-changing risk premia for stocks as the environment develops.

Economically, the market is increasingly worried about the growing risks of recession, a fear that is largely centred on the US and China, and which we see as overly pessimistic. As far as Europe is concerned, we have not seen a significant shift in data year-to-date and Europe remains relatively robust, with pockets of strength in consumer-related segments of the economy in particular. Supportive European Central Bank policy remains, leading to positive money supply growth in the economy. However, Europe is not immune to global growth concerns and a freezing of credit and liquidity can override any short term strength. The outlook for Emerging Europe appears better than it has been for some considerable time and, where appropriate, we may look to increase exposure selectively.

Within this context, we retain a keen eye on valuation; quality is not cheap in European equities and we will maintain our discipline. We are sticking to companies that offer higher earnings visibility and attractive stock-specific drivers and looking to avoid value traps in highly cyclical businesses at a time of uncertainty.

Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
19 April 2016

Ten largest investments
29 February 2016

Novo Nordisk: 5.2% (2015: 4.8%) is a Danish pharmaceuticals company and the dominant global franchise in diabetes treatment. The company has a very strong pipeline of new drugs and is able to access the long term growth in diabetes treatment through its high market share globally. The pipeline of haemophilia drugs also provides further growth opportunities for the company. We believe that Novo Nordisk has significant potential to continue its strong track record of delivering double-digit earnings growth per year for the foreseeable future.

Novartis: 4.6% (2015: 5.4%) is a Swiss multinational pharmaceutical company which has streamlined its business operations in the last year. The company has guided to a focus on cost cutting going forward through centralisation and vertical integration of manufacturing and drug development, with cost savings used for research and development and further growth opportunities. In addition to this, they are restructuring their Ophthalmology business, where they see potential for large profits in a market which currently has over $40 billion of sales in the US.

Ryanair: 3.0% (2015: 2.6%) is an Irish airline operator and Europe’s lowest cost carrier. As well as being a beneficiary of the lower oil price, the company is benefiting from the new strategy initiatives to attract back leisure customers whilst growing the business customer base. The airline has established a sound track record of cutting fares but increasing profits through growing customer traffic and load factors.

Adidas: 3.0% (2015: nil) is one of the global leaders in the sporting goods industry. Whilst the company has a solid market share in Europe, it has heavily lagged the Nike brand in the US. The company has the opportunity to vastly improve market share in this area through increasing focus towards social media, sponsorships and creating new products with a ‘consumer-obsessed mindset’. Thus far, we have seen Adidas branded sales growth (which is 85% of total sales) reaccelerating. In addition, the company exhibits a self-help characteristic with a new CEO who has a strong reputation for cost management joining the group in the second half of 2016.

Heineken: 2.9% (2015: 2.5%) is the second largest brewer globally by revenue, with brands available in more than 170 markets. The company has plenty of self-help elements through a combination of brand and innovation management, working towards growing the top line and addressing costs so to improve the margin. Investment in the company gives exposure to emerging markets: over 60% of group beer volumes come from developing economies.

Vinci: 2.9% (2015: nil) is a French concession and construction company which, with its 2015 acquisitions, is one of the world’s top five airport operators. The company is also prominent within the road transport sector, operating more than half of France’s motorways under concession. Both the contracting and concessions businesses are doing well, with a pick-up in construction and traffic in France. The business is attractively valued with focus on margin recovery.

RELX: 2.8% (2015: 2.3%) is a multinational information and analytics company. The company is aiming to promote organic development, transforming its core business and building out new products. RELX has established high barriers to entry, giving confidence to its competitive position and allowing for more predictable revenues going forward. The stock offers steady compounding growth.

Deutsche Telekom: 2.8% (2015: 2.5%) is a German telecommunications company. The stock has an attractive valuation and has potential for solid revenue growth. Deutsche Telekom will benefit from market consolidation in Germany and continued growth of T-Mobile in the US. With this exposure, the stock is a beneficiary of the stronger US Dollar relative to the Euro.

Unibail-Rodamco: 2.8% (2015: 2.5%) is the largest commercial real estate company in Europe. The company has a strong portfolio of assets, consistently growing rents above indexation and can create value through the development of its portfolio. The company also offers an attractive dividend yield in today’s environment.

Sampo Oyj: 2.6% (2015: 1.7%) is a Finnish insurance group. The stock has low earnings volatility, an attractive yield proposition and a growing dividend. It operates within an oligopoly in Scandinavia, primarily within P&C insurance, providing defensive cash flow streams which can be converted to capital returns for investors.

All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 August 2015. Together, the ten largest investments represent 32.6% of the Company’s portfolio (ten largest investments as at 31 August 2015: 34.0%).

Investments
as at 29 February 2016

	Country of  operation	Market  value  £’000	% of  investments
Financials
Unibail-Rodamco	France	6,991	2.8
Sampo Oyj	Finland	6,545	2.6
KBC Groep	Belgium	5,215	2.0
Julius Baer	Switzerland	5,004	2.0
AXA	France	4,899	1.9
Zurich Insurance Group	Switzerland	4,683	1.9
Sberbank	Russia	4,528	1.8
PZU	Poland	4,472	1.8
Bank of Ireland	Ireland	4,386	1.7
Intesa Sanpaolo	Italy	4,251	1.7
Helvetia	Switzerland	3,840	1.5
Anima	Italy	3,643	1.4
Azimut	Italy	3,559	1.4
Halk Bank	Turkey	3,471	1.4
Avanza Bank	Sweden	3,227	1.3
Garanti Bank	Turkey	2,750	1.1
		---------	-------
		71,464	28.3
		---------	-------
Industrials
Vinci	France	7,254	2.9
Thales	France	5,495	2.2
Safran	France	5,253	2.1
Assa Abloy	Sweden	5,210	2.0
Hexagon	Sweden	5,051	2.0
Ferrovial	Spain	3,990	1.6
Geberit	Switzerland	3,894	1.5
Atlantia	Italy	3,307	1.3
CRH	Ireland	2,737	1.1
Kingspan	Ireland	2,702	1.1
Dassault Aviation	France	1,980	0.8
Saft Groupe	France	1,658	0.6
		---------	-------
		48,531	19.2
		---------	-------
Health Care
Novo Nordisk	Denmark	13,097	5.2
Novartis	Switzerland	11,568	4.6
Fresenius Medical Care	Germany	5,370	2.1
Straumann	Switzerland	4,445	1.8
Lonza Group	Switzerland	4,195	1.6
Roche	Switzerland	2,818	1.1
William Demant	Denmark	2,730	1.1
		---------	-------
		44,223	17.5
		---------	-------
Consumer Goods
Adidas	Germany	7,570	3.0
Heineken	Netherlands	7,298	2.9
LVMH Moët Hennessy	France	5,696	2.3
Pandora	Denmark	5,346	2.1
Luxottica	Italy	4,144	1.6
Ontex	Belgium	1,892	0.7
Carlsberg	Denmark	1,737	0.7
		---------	-------
		33,683	13.3
		---------	-------
Consumer Services
Ryanair	Ireland	7,697	3.0
RELX	Netherlands	7,193	2.8
Paddy Power Betfair	Ireland	4,127	1.7
TUI	Germany	3,691	1.5
		---------	-------
		22,708	9.0
		---------	-------
Technology
Capgemini	France	6,539	2.6
Nokia	Finland	5,643	2.3
Yandex	Netherlands	4,629	1.8
United Internet	Germany	3,333	1.3
Scout24	Germany	1,121	0.4
		---------	-------
		21,265	8.4
		---------	-------
Telecommunications
Deutsche Telekom	Germany	7,058	2.8
Koninklijke	Netherlands	3,790	1.5
		---------	-------
		10,848	4.3
		---------	-------
Total Investments		252,722	100.0
		=======	=====

All investments are in ordinary shares unless otherwise stated. The total number of investments held at 29 February 2016 was 53 (31 August 2015: 53).

Income statement
for the six months ended 29 February 2016

		Revenue £’000			Capital £’000			Total £’000
	Notes	Six months  ended  29.02.16  (unaudited)	Six months  ended  28.02.15  (unaudited)	Year  ended  31.08.15  (audited)	Six months  ended  29.02.16  (unaudited)	Six months  ended  28.02.15  (unaudited)	Year  ended  31.08.15  (audited)	Six months  ended  29.02.16  (unaudited)	Six months  ended  28.02.15  (unaudited)	Year  ended  31.08.15  (audited)
Gains on investments held at fair value through profit or loss		–	–	–	5,689	20,459	15,822	5,689	20,459	15,822
Income from investments held at fair value through profit or loss	3	980	1,063	6,931	–	–	–	980	1,063	6,931
Other income	3	110	189	195	–	–	–	110	189	195
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Total income		1,090	1,252	7,126	5,689	20,459	15,822	6,779	21,711	22,948
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Expenses
Investment management and performance fees	4	(225)	(173)	(358)	(899)	(692)	(2,306)	(1,124)	(865)	(2,664)
Operating expenses	5	(320)	(315)	(561)	(21)	(13)	(18)	(341)	(328)	(579)
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Total operating expenses		(545)	(488)	(919)	(920)	(705)	(2,324)	(1,465)	(1,193)	(3,243)
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Net profit before finance costs and taxation		545	764	6,207	4,769	19,754	13,498	5,314	20,518	19,705
Finance costs		(24)	(1)	(17)	(9)	(4)	(34)	(33)	(5)	(51)
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Net profit on ordinary activities before taxation		521	763	6,190	4,760	19,750	13,464	5,281	20,513	19,654
Taxation		371	(72)	(581)	–	(87)	(115)	371	(159)	(696)
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Net profit on ordinary activities after taxation	7	892	691	5,609	4,760	19,663	13,349	5,652	20,354	18,958
		--------	--------	--------	--------	---------	---------	--------	---------	---------
Earnings per ordinary share – both basic and diluted	7	0.86p	0.64p	5.28p	4.59p	18.31p	12.57p	5.45p	18.95p	17.85p
		=====	=====	=====	=====	=====	=====	=====	=====	=====

The total column of this statement represents the Company’s Profit and Loss Account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations and no operations were acquired or discontinued during the period. All income is attributable to the equity holders of BlackRock Greater Europe Investment Trust plc.

The Company does not have any other recognised gains or losses. The net profit for the period disclosed above represents the Company’s total comprehensive income.

Statement of changes in equity
for the six months ended 29 February 2016

	Called up  share  capital  £’000	Share  premium  account  £’000	Capital  redemption  reserve  £’000	Special  reserve  £’000	Capital  reserves  £’000	Revenue  reserve  £’000	Total  £’000
For the six months ended 29 February 2016 (unaudited)
At 31 August 2015	130	61,899	110	10,115	178,960	10,245	261,459
Total comprehensive income:
Profit for the period	–	–	–	–	4,760	892	5,652
Transactions with owners, recorded directly to equity:
Exercise of subscription shares	–	35	–	–	–	–	35
Ordinary shares purchased into treasury	–	–	–	(3,099)	–	–	(3,099)
Share purchase costs	–	–	–	(67)	–	–	(67)
Dividend paid*	–	–	–	–	–	(3,494)	(3,494)
	--------	---------	--------	---------	----------	--------	----------
At 29 February 2016	130	61,934	110	6,949	183,720	7,643	260,486
	--------	---------	--------	---------	----------	--------	----------
For the six months ended 28 February 2015 (unaudited)
At 31 August 2014	135	61,644	105	21,630	165,611	9,862	258,987
Total comprehensive income:
Profit for the period	–	–	–	–	19,663	691	20,354
Transactions with owners, recorded directly to equity:
Exercise of subscription shares	–	36	–	–	–	–	36
Ordinary shares purchased into treasury	–	–	–	(316)	–	–	(316)
Ordinary shares purchased and cancelled	(3)	–	3	(7,254)	–	–	(7,254)
Share purchase costs	–	–	–	(93)	–	–	(93)
Dividend paid**	–	–	–	–	–	(3,482)	(3,482)
	--------	---------	--------	---------	----------	--------	----------
At 28 February 2015	132	61,680	108	13,967	185,274	7,071	268,232
	--------	---------	--------	---------	----------	--------	----------
For the year ended 31 August 2015 (audited)
At 31 August 2014	135	61,644	105	21,630	165,611	9,862	258,987
Total comprehensive income:
Return for the year	–	–	–	–	13,349	5,609	18,958
Transactions with owners, recorded directly to equity:
Exercise of subscription shares	–	255	–	–	–	–	255
Ordinary shares purchased into treasury	–	–	–	(317)	–	–	(317)
Ordinary shares purchased and cancelled	(5)	–	5	(11,043)	–	–	(11,043)
Share purchase costs	–	–	–	(155)	–	–	(155)
Dividend paid***	–	–	–	–	–	(5,226)	(5,226)
	--------	---------	--------	---------	----------	--------	----------
At 31 August 2015	130	61,899	110	10,115	178,960	10,245	261,459
	=====	======	======	======	======	======	======

*              In respect of the year ended 31 August 2015 a final dividend of 3.35p per share was declared on 22 October 2015 and paid on 18 December 2015.
**             In respect of the year ended 31 August 2014 a final dividend of 3.20p per share was declared on 21 October 2014 and paid on 12 December 2014.
***           In respect of the year ended 31 August 2015 an interim dividend of 1.65p per share was declared on 23 April 2015 and paid on 29 May 2015. In respect of the year ended 31 August 2014 a final dividend of 3.20p per share was declared on 21 October 2014 and paid on 12 December 2014.

The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £220,000 for the six months ended 29 February 2016 (six months ended 28 February 2015: £419,000; year ended 31 August 2015: £627,000).

Balance sheet
as at 29 February 2016

	Notes	29 February  2016  £’000  (unaudited)	28 February  2015  £’000  (unaudited)	31 August  2015  £’000  (audited)
Fixed assets
Investments held at fair value through profit or loss		252,722	269,556	260,507
		=======	=======	=======
Current assets
Debtors		856	12,228	2,206
Cash and cash equivalents	2	10,857	–	2,420
		---------	---------	--------
		11,713	12,228	4,626
		---------	---------	--------
Creditors – amounts falling due within one year
Bank overdraft		–	(9,414)	–
Other creditors		(3,949)	(4,138)	(3,674)
		---------	----------	---------
		(3,949)	(13,552)	(3,674)
		---------	----------	---------
Net current assets/(liabilities)		7,764	(1,324)	952
		---------	----------	---------
Net assets		260,486	268,232	261,459
		=======	=======	=======
Capital and reserves
Called-up share capital	8	130	132	130
Share premium account		61,934	61,680	61,899
Capital redemption reserve		110	108	110
Capital reserves		183,720	185,274	178,960
Special reserve		6,949	13,967	10,115
Revenue reserve		7,643	7,071	10,245
		-----------	-----------	-----------
Total shareholders’ funds		260,486	268,232	261,459
		=======	=======	=======
Net asset value per ordinary share – undiluted	7	252.69p	253.82p	250.66p
		=======	=======	=======
Net asset value per ordinary share – diluted	7	251.91p	253.82p	250.22p
		=======	=======	=======

Statement of cash flows
for the six months ended 29 February 2016

	Six months  ended  29 February  2016  £’000  (unaudited)	Six months  ended  28 February  2015  £’000  (unaudited)	Year  ended  31 August  2015  £’000  (audited)
Operating activities
Net profit before taxation	5,281	20,513	19,654
Interest expense	33	5	51
Gains on investments	(5,689)	(20,459)	(15,822)
Sales of investments	89,710	151,734	254,006
Purchases of investments	(73,964)	(152,610)	(242,004)
(Increase)/decrease in debtors	(4)	17	86
(Decrease)/increase in other creditors	(213)	619	1,156
Refund of withholding tax reclaims	562	817	1,183
Tax on investment income	(248)	(159)	(1,210)
	---------	--------	----------
Net cash generated from operating activities	15,468	477	17,100
	---------	--------	----------
Financing activities
Purchase of ordinary shares	(3,099)	(7,570)	(11,360)
Share issue and share purchase costs paid	(31)	(122)	(124)
Interest paid	(11)	(5)	(42)
Proceeds from issue of subscription shares	35	36	255
Dividends paid	(3,494)	(3,482)	(5,226)
	---------	----------	----------
Net cash used in financing activities	(6,600)	(11,143)	(16,497)
	---------	----------	----------
Increase/(decrease) in cash	8,868	(10,666)	603
	---------	----------	----------
Cash and cash equivalents at the beginning of period/year	2,420	1,107	1,107
Effect of foreign exchange rates changes	(431)	145	710
	---------	---------	----------
Cash and cash equivalents at the end of period/year	10,857	(9,414)	2,420
	---------	---------	----------
Comprised of:
Cash at bank	284	–	95
BlackRock Institutional Cash Fund – Euro Assets Liquidity Fund	10,573	–	2,325
Bank overdraft	–	(9,414)	–
	---------	---------	----------
	10,857	(9,414)	2,420
	======	======	======

Notes to the financial statements
for the six months ended 29 February 2016

1. Principal activity

The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.

2. Basis of preparation

The Company is applying for the first time, for the year ending 31 August 2016, FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’, which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2012 and 2013 and which came into effect for accounting periods beginning on or after 1 January 2015. The last financial statements prepared under the previous UK GAAP were for the year ended 31 August 2015.

The condensed set of financial statements have been prepared on a going concern basis in accordance with FRS 102 and FRS 104, ‘Interim Financial Reporting’ issued by the FRC in March 2015 and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014.

As a result of the first time adoption of New UK GAAP and the revised SORP, comparative amounts and presentation formats have been amended where required. The changes to accounting policies relate to the composition of cash and cash equivalents, change in the presentation of cash flows (see below) and fair value hierarchy of financial instruments (see note 9). There were no adjustments to the Company’s Income Statement for the financial year ended 31 August 2015 and the total equity as at 1 September 2014 and 31 August 2015 between UK GAAP as previously reported and FRS 102 as a result of changes to accounting policies.

The Company’s Statement of Cash Flows reflects the presentation requirements of FRS 102, which is different to that prepared under FRS 1. In addition, the Statement of Cash Flows reconciles to cash and cash equivalents, whereas under previous UK GAAP the Statement of Cash Flows reconciled to cash. Cash and cash equivalents are defined in FRS 102 as ‘cash in hand and demand deposits, short term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value’ and the bank overdraft which forms an integral part of the Company’s cash management policy, whereas cash is defined in FRS 1 as ‘cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demand’. Accordingly, the Company’s investment in BlackRock’s Institutional Cash Fund – Euro Assets Liquidity Fund of £10,573,000 (28 February 2015: £nil; 31 August 2015: £2,325,000) which is managed as part of the Company’s cash management policy has been classified in the Balance Sheet and the Statement of Cash Flows as cash and cash equivalents.

The accounting policies applied for the financial statements with regard to measurement and classification are as set out in the Company’s Annual Report and Financial Statements for the year ended 31 August 2015. This reflects the Company’s application of Sections 11 and 12 of FRS 102 in relation to financial instruments, in full.

References to prior, individual Financial Reporting Statements (FRS) should now be taken as references to FRS 102 and FRS 104.

3. Income

	Six months  ended  29 February  2016  (unaudited)  £’000	Six months  ended  28 February  2015  (unaudited)  £’000	Year  ended  31 August  2015  (audited)  £’000
Investment income:
Overseas dividends	980	1,063	6,931
	--------	--------	--------
	980	1,063	6,931
	--------	--------	--------
Other income:
	--------	--------	--------
Bank interest	–	3	10
	--------	--------	--------
Interest on WHT reclaims	110	186	185
	--------	--------	--------
	110	189	195
	--------	--------	--------
Total income	1,090	1,252	7,126
	=====	=====	=====

Dividends and interest received during the period amounted to £937,000 and £110,000 (six months ended 28 February 2015: £1,050,000 and £232,000; year ended 31 August 2015: £7,012,000 and £238,000) respectively.

4. Investment management and performance fees

	Six months ended 29 February 2016 (unaudited)			Six months ended 28 February 2015 (unaudited)			Year ended 31 August 2015 (audited)
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Investment management fee	225	899	1,124	173	692	865	358	1,434	1,792
Performance fee	–	–	–	–	–	–	–	872	872
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Total	225	899	1,124	173	692	865	358	2,306	2,664
	=====	=====	======	======	======	=====	=====	=====	======

With effect from 1 September 2015, the investment management fee is levied quarterly based on 0.85% per annum of the net asset value on the last day of each month. Until 31 August 2015, the investment management fee was 0.70% per annum of the market capitalisation of the Company’s ordinary shares on the last day of each month. The investment management fee is allocated 80% to capital reserves and 20% to the revenue reserve.

With effect from 1 September 2015, the Company no longer pays a performance fee (six months ended 28 February 2015: nil; year ended 31 August 2015: £872,000). The performance fee accrued at 31 August 2015 was based on the outperformance of the Company’s share price relative to the FTSE World Europe ex UK Index over a three year rolling period.

5. Operating expenses

	Six months  ended  29 February  2016  (unaudited)  £’000	Six months  ended  28 February  2015  (unaudited)  £’000	Year  ended  31 August  2015  (audited)  £’000
Custody fees	13	12	26
Depositary fees	18	17	36
Audit fees	15	14	25
Registrar’s fees	44	42	90
Directors’ emoluments	53	53	118
Marketing fees	62	80	48
Other administration costs	115	97	218
	--------	--------	--------
	320	315	561
	--------	--------	--------
Transaction costs to capital	21	13	18
	=====	======	=====

6. Dividend

The Board has declared an interim dividend of 1.65p per share for the period ended 29 February 2016 payable on 27 May 2016 to shareholders on the register on 29 April 2016. The total cost of the dividend based on 102,761,916 ordinary shares in issue at 19 April 2016 was £1,696,000 (28 February 2015: £1,744,000).

In accordance with FRS 102, Section 32 ‘Events After the End of the Reporting Period’, the interim dividend payable on the ordinary shares has not been included as a liability in the financial statements, as interim dividends are only recognised when they have been paid.

7. Earnings and net asset value per ordinary share

Revenue and capital returns per share are shown below and have been calculated using the following:

	29 February  2016  (unaudited)	28 February  2015  (unaudited)	31 August  2015  (audited)
Net revenue profit attributable to ordinary shareholders (£’000)	892	691	5,609
Net capital profit attributable to ordinary shareholders (£’000)	4,760	19,663	13,349
	--------	--------	--------
Total profit (£’000)	5,652	20,354	18,958
	--------	--------	--------
Equity shareholders’ funds (£’000)	260,486	268,232	261,459
	-----------	-----------	-----------
Earnings per share
Undiluted
	-----------------	-----------------	-----------------
The weighted average number of ordinary shares in issue during the period, on which the undiluted profit per ordinary share was calculated was:	103,701,234	107,399,899	106,194,950
	-----------------	-----------------	-----------------
The actual number of ordinary shares in issue at the period end, on which the undiluted net asset value was calculated was:	103,086,916	105,676,343	104,309,663
	-----------------	-----------------	-----------------
Calculated on weighted average number of shares
Revenue profit	0.86p	0.64p	5.28p
Capital profit	4.59p	18.31p	12.57p
	--------	--------	--------
Total	5.45p	18.95p	17.85p
	--------	--------	--------
Net asset value per share – undiluted	252.69p	253.82p	250.66p
	-----------	-----------	-----------
Calculated on actual number of shares
Revenue profit	0.86p	0.65p	5.38p
Capital profit	4.62p	18.61p	12.80p
	--------	---------	---------
Total	5.48p	19.26p	18.18p
	--------	---------	---------
Earnings per share
Diluted
The weighted average number of ordinary shares in issue during the period, on which the diluted profit per ordinary share was calculated was:	103,701,234	107,399,899	106,194,950
	-----------------	-----------------	-----------------
The actual number of ordinary shares in issue, including subscription shares, at the period end, on which the fully diluted net asset value was calculated was:	123,617,914	126,309,643	124,854,841
	-----------------	-----------------	-----------------
Calculated on weighted average number of shares
Revenue profit	0.86p	0.64p	5.28p
Capital profit	4.59p	18.31p	12.57p
	--------	---------	---------
Total	5.45p	18.95p	17.85p
Net asset value per share – diluted	251.91p	253.82p	250.22p
	=======	=======	=======

Dilution for subscription shares is assessed at the reporting date and over the duration of the reporting period. A diluted NAV is calculated to the extent that the period end NAV and the mid-market closing share price are both above the exercise price of the subscription shares. Diluted returns are calculated where, over the reporting period, the mid-market closing share price is above the subscription share exercise price.

The diluted NAV per share at 29 February 2016, 28 February 2015 and 31 August 2015 is calculated by adjusting equity shareholders’ funds for the consideration receivable on the exercise of the 20,530,998 subscription shares (28 February 2015: 20,633,300; 31 August 2015: 20,545,178) at the exercise price of 248.00p per share and dividing by the total number of shares that would have been in issue at those dates had all the subscription shares been exercised. The subscription shares were dilutive at 29 February 2016 (six months ended 28 February 2015: not dilutive; year ended 31 August 2015: dilutive).

In accordance with IAS 33 ‘Earnings per share’, as referenced in FRS 102 Section 10.6, there is no dilutive impact on the earnings per share for the period 29 February 2016 as the mid-market price of the ordinary shares during the period of 243.37p is below the exercise price of the subscription shares of 248.00p per share.

At 29 February 2016, the Company had 6,725,825 shares (28 February 2015: 5,561,653; 31 August 2015: 5,488,898) held in treasury. The Company’s policy on issuing treasury shares, set out on page 19 and 20 of the Annual Report for the year ended 31 August 2015, permits the Directors to sell treasury shares at a price below the NAV in certain circumstances. As a result this would have a dilutive effect.

8. Share capital and shares held in treasury

	Number of  ordinary  shares  in issue	Number of  treasury  shares  in issue	Number of  subscription  shares  in issue	Total	Nominal  value  £
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 0.1p each:
At 1 September 2015	104,309,663	5,488,898	–	109,798,561	109,798
Shares bought back to treasury (tender offer)	(1,236,927)	1,236,927	–	–	–
	-----------------	--------------	--------	--------	--------
	103,072,736	6,725,825	–	109,798,561	109,798
Subscription shares of 0.1p each:
At 1 September 2015	–	–	20,545,178	20,545,178	20,545
Conversion of subscription shares into ordinary shares	14,180	–	(14,180)	–	–
	-----------------	--------------	---------------	-----------------	-----------
At 29 February 2016	103,086,916	6,725,825	20,530,998	130,343,739	130,343
	==========	========	=========	==========	=======

9. Valuation of financial instruments

The Company has early adopted the amendments to FRS 102 ‘Fair value hierarchy disclosure’ effective for annual periods beginning on or after 1 January 2017. These amendments improve the consistency of fair value disclosure for financial instruments compared with those required by EU adopted IFRS.

The Company classifies financial instruments measured at fair value using a fair value hierarchy. The fair value hierarchy has the following categories:

Level 1 – Quoted prices for identical instruments in active markets

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.

Level 2 – Valuation techniques using observable inputs

This category includes instruments valued using: quoted prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 – Valuation techniques using significant unobservable inputs

This category includes all instruments where the valuation techniques used include inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.

This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager. The Investment Manager considers observable inputs to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.

Financial assets at fair value through profit or loss at 29 February 2016	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	252,722	–	–	252,722
	=======	=======	=======	=======

   

Financial assets at fair value through profit or loss at 28 February 2015	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	269,556	–	–	269,556
	=======	=======	=======	=======

   

Financial assets at fair value through profit or loss at 31 August 2015	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	260,507	–	–	260,507
	=======	=======	=======	=======

There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 29 February 2016, 28 February 2015 and 31 August 2015. The Company did not hold any Level 3 securities through the six month period or as at 29 February 2016 (28 February 2015: nil; 31 August 2015: nil).

10. Related party disclosure

As at 31 August 2015, the Board consisted of five non-executive Directors, all of whom are considered to be independent by the Board. As of 10 December 2015, Gerald Holtham retired from the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £33,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £27,500 and each other Director receives an annual fee of £23,000.

The following members of the Board hold shares in the Company: Carol Ferguson holds 57,600 ordinary shares and Eric Sanderson holds 4,000 ordinary shares. Since the period end, and up to the date of this report, there have been no changes in Directors’ holdings.

The transactions with the AIFM and the Investment Manager are stated in note 11.

11. Transactions with the AIFM and the Investment Manager

BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 2 July 2014. BFM provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Annual Report and Financial Statements on pages 16 and 17.

The investment management fee is levied quarterly, based on 0.85% of the net asset value on the last day of each month. The investment management fee due for the six months ended 29 February 2016 amounted to £1,124,000 (six months ended 28 February 2015: £865,000; year ended 31 August 2015: £1,792,000). With effect from 1 September 2015 the Company no longer pays a performance fee (six months ended 28 February 2015: nil; year ended 31 August 2015: £872,000). At the period end, £1,575,000 was outstanding in respect of the management fee (six months ended 28 February 2015: £1,142,000; year ended 31 August 2015: £927,000).

In addition to the above services, with effect from 1 November 2013, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the six months ended 29 February 2016 amounted to £52,000 excluding VAT (six months ended 28 February 2015: £65,000; year ended 31 August 2015: £48,000). Marketing fees of £133,000 excluding VAT were outstanding at 29 February 2016 (28 February 2015: £178,000; 31 August 2015: £161,000).

The Company held an investment in BlackRock’s Institutional Cash Fund – Euro Assets Liquidity Fund of £10,573,000 at 29 February 2016 (28 February 2015: nil; 31 August 2015: £2,325,000).

12. Contingent liabilities

There were no contingent liabilities at 29 February 2016 (28 February 2015: nil; 31 August 2015: nil).

13. Publication of non statutory accounts

The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 29 February 2016 and 28 February 2015 has not been audited.

The information for the year ended 31 August 2015 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under sections 498 (2) or (3) of the Companies Act 2006.

14. Annual results

The Board expects to announce the annual results for the year ending 31 August 2016, as prepared under New UK GAAP, in late October 2016. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000. The Annual Report and Financial Statements should be available by the end of October 2016, with the Annual General Meeting being held at the end of November 2016.

12 Throgmorton Avenue
London
EC2N 2DL

For further information please contact:

Simon White, Managing Director, Closed End Funds, BlackRock Investment Management (UK) Limited – 020 7743 5284

Vincent Devlin, Fund Manager, BlackRock Investment Management (UK) Limited – 020 7743 3000

Press enquiries:

Lucy Horne, Lansons Communications – Tel:  [phone]
E-mail:  [e-mail]

END

The Half Yearly Financial Report will also be available on the BlackRock website at www.blackrock.co.uk/brge. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.

Copyright il 8 PR Newswire